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Sunday, December 04, 2022

The Stats Guy: Three megatrends that help predict Australia’s future

Natural disasters, COVID, and now the war in Ukraine – in such turbulent times the forecast seems impossible.

Although forecasting has certainly become difficult, it is still a useful exercise. We need to think about which megatrends we can be fairly certain about in order for predictions to be reliable. Once we establish these criteria, it becomes much easier to think clearly about Australia’s future.

Let’s look at three demographic megatrends that can help us in our forecasting efforts. Read at your own risk – all of these trends are controversial to an extent.

population growth

First, we can expect a quick return to migration-induced pre-COVID population growth (perhaps even beyond), of which more than 80 percent are represented by international students and skilled workers.

The demand for English-speaking university education has not decreased since COVID. Asia’s continued urbanization does not deter slum dwellers; Rather, it is the largest rise of a middle class in history.

Before COVID, Australian universities benefited as new assets were invested in education by sending children to pursue academic credentials in Australia. These students will return as soon as the border opens.

It remains to be seen whether our universities were smart enough to better align their offerings with the needs of the Australian labor force. The return of international students will help re-energize the inner cities and address the skill gap in hospitality.

Historically, nearly one in six international students became permanent residents. In the light of the national skill shortage, we must make the path to citizenship easier for international students. Canada has already gone down this path and is doing better than us in attracting talent.

There is a dire need for skilled migrants in Australia.

Businesses across the country, across all industries, are complaining about a shortage of skilled workers. The pressure on the federal government to put more and more jobs on the skilled migration list will only increase. If we fail to attract skilled workers, we cannot possibly fund all infrastructure projects liberally proposed in state and federal budgets, and expand our business operations.

Will the expatriate still want to come to Australia? Didn’t our long lockdown scare off potential newcomers? Absolutely not. We should not underestimate the attention that is given to Australia abroad.

We are still one of the richest countries on the planet, offering safe cities, high-income jobs, education and a democratic government.

On top of this, a growing number of migrants would appear to be moving to Australia as a good defense against a potentially major war in Europe. In times of crisis, the tyranny of distance turns into a boon.

A major problem that could make Australia unattractive to migrants is the high cost of housing. Solving the housing affordability crisis remains a national emergency.

short term GDP growth

Second, Australia will see GDP growth, at least in the short term. Education and tourism are still in the recovery phase, Australia’s 10 biggest exports are all the goods we dig up from the ground (iron ore, coal, oil, gold, copper) or food (wheat, meat).

The war in Ukraine drives up prices for such goods, as global supply shrinks while demand remains stagnant.

The challenge is to translate this short-term GDP growth into a better life for all Australians. Of our more than 12 million jobs, less than 300,000 are in the mining industry. Should unexpected mining profits be taxed at very high rates? There are such thoughts floating around at the moment.

As tourism and international education return to pre-COVID levels, foreign money flows into Australia and boosts GDP.

However, Australians are unlikely to feel much richer. Without open borders and free trade, many things would become more expensive.

We consume many things from abroad. Our largest imports are automotive, fuel, pharmaceuticals, communication equipment, computers and all types of machinery and equipment.

It is not just your personal consumption that will be affected. The cost of doing business increases as companies pay more for parts, equipment, and materials. This in turn makes all Australian products and services more expensive.

A country that is getting richer while life is getting more expensive would be well advised to invest in community and nation building infrastructure.

We must set our economy on clearly future-focused industries because the rise in the prices of food items and commodities will not last forever.

polarized labor force

Third, our workforce is getting hollowed out. I wrote about this trend in more detail earlier.

We create a lot of high paying knowledge jobs. These highly educated workers are well paid. We also create low-skilled and unskilled jobs with very low pay. There is no career path in these jobs. Workers earn as much, whether they have one or 20 years of work experience, as they are being paid by item, kilometer, or gig work.

Job security is also terrible. It was low-skilled workers who lost their jobs during the pandemic. Workers in these skill level 4 and 5 jobs do not earn enough to afford a family home in a capital city.

Although we are adding high and low paying jobs, we are removing middle income jobs. How can we maintain social unity in a country that is drifting into two clearly separate high-paid and low-paid camps?

Social unity is highly likely to deteriorate, especially since religion no longer acts as a social glue. To counter that trend, we rely on small-scale community-based groups and, more than ever, we need sport to bring us together.

Don’t underestimate the power of sport in Australia.

It’s pubs, stadiums, community sports showing live matches, and your local Cross-Fit gym that bring people from different socio-economic backgrounds together. Social segregation increasingly does not occur along ethnic or gender lines, but only along socio-economic peoples.

From a business standpoint, this means that blindly targeting the center of the market is a losing bet. One size does not fit all. The center is melting as the edges rise. Adjust your business practices to capture the growing range.

Bottom-line

Population growth can be estimated. More people, more GDP. The workforce shifts toward more highly skilled jobs – and this will also boost GDP as knowledge workers contribute more dollars to GDP. Global prices of resources and goods will rise – so will GDP.

Australia has a good chance of climbing up the rankings to become the 12th or 11th largest economy. Russian GDP will fall, and we may soon catch up with Brazil. The challenge remains to distribute GDP more equitably and fairly.

Although we will be a rich nation, we will feel poor because of rising prices.

Keep these three megatrends in mind when forecasting the future and you have a better chance of getting it right.

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